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Network in the making

Two years ago, Pappas Telecasting and TV Azteca, the Mexican broadcaster and programmer, created a joint venture to bring a third Spanish-language broadcasting network to the U.S. Called the Azteca America Network, it was to have begun broadcasting in the first or second quarter of 2001. It didn't happen.

In the first quarter of 2002, though, a third Spanish-language network did go on the air in the U.S.: Univision-owned Telefutura.

Meanwhile, Azteca America is still a network in the making, and perhaps a case study in how the best-laid plans can go awry.

Indeed, the network is no longer a joint venture. Initially, Pappas Telecasting was the majority owner, and Harry Pappas was chairman of the network. TV Azteca was to be the programming supplier with a 20% ownership stake. Azteca America is now owned 100% by TV Azteca, and Pappas no longer has an ownership interest.

But four Pappas stations are affiliates of the network: KAZA-TV Los Angeles, KTNC-TV San Francisco, KAZH-TV Houston and KUVR-TV Reno, Nev.

"We decided that we'd each do what we do best," says Luis Echarte, president and CEO of Azteca America.

To help Pappas get going, TV Azteca has taken up to a 25% ownership interest in Pappas's Azteca-affiliated stations, the maximum foreign investment in stations allowable under current law.

Echarte says that building the network's distribution base has been its toughest challenge. Under the original plan, Pappas was to buy and build more stations; the recession took care of that dream.

So Azteca America remains a regional program service beaming to stations in the Southwest, California and Florida. But Echarte remains optimistic that he can grow the distribution to 60% of the U.S. Hispanic household universe by the end of 2003 and begin selling network ads by the end of that year.

The good news is that the company is making progress expanding the affiliate base.

Just today, as a matter of fact, the company is announcing the addition of five affiliates, which will bring the network's coverage to 35% of the nation's Hispanic households. The new affiliates are KQDF-TV Albuquerque; KDAF-TV Austin, Texas; KSMI-TV Wichita, Kan., KYAV-TV Palm Springs, Calif.; and KSBT-TV Santa Barbara, Calif.

"The big struggle is distribution," Echarte says. "The programming isn't that big a gamble, because most of the production cost is absorbed in Mexico," where Azteca operates two networks and controls about 40% of the market.

The core programming is novelas
and sports. But other formats work well, too. In fact, Azteca produced a hit earlier this year with an American Idol-type show called La Academia.

Echarte says TV Azteca has the patience to build Azteca America into a viable network. "We'd like to be at 20% to 25% share of market in five years time," he says. "We think that is a reasonable projection and very achievable."

Analysts remain cautiously optimistic about the new venture. SalomonSmithBarney analyst Pablo Burbridge wrote last week that Azteca's ability to sign new affiliates, "without capital investments," is a positive sign.